Thoughts on Migration

This is a complex matter that cannot be understood if we simply engage in emotivist responses to the latest news items that cross our paths. It’s time to get serious with this discussion. So let’s put our thinking caps on and begin with some basic distinctions and principles.

We start by distinguishing between migration and refugees seeking asylum. The latter is not a function of economics but of compassion. Furthermore, it is unclear as to how much of the movements pertain to the one category and how much to the other, but it can be assumed that the larger portion is migration-oriented in character.

Some economic principles to guide the discussion

Migration is an aspect of a global confluence of factors mainly economic in character.

Certain basic economic concepts have to be grasped in order to get a proper view of this phenomenon.

First: the economy, whether viewed locally, nationally, or globally, is a circular flow of the production and consumption of goods and services. This is the so-called real economy.

Second: not only is there a circular flow of goods and services, there is also a circular flow of payment, credit and debt, which is generated together with the other circular flow. It is both the result of that flow, and affects that flow. This is the so-called financial economy.

The two impinge on each other and determine each other. They cannot be viewed in isolation but as two parts of the same coin. The trouble with much of modern economics is that it does not do that. But that is the subject of another treatment.

These circular flows are firstly local, comprising a local economy. A larger economy is a composite of smaller economies, and so comprises a confluence of circular flows. For this reason the economy, especially in other languages like French, is also called the conjuncture. The broader economy is a conjuncture of smaller economies operating more or less in sync with each other.

The component sub-economies do not move in lockstep. Rather, they develop at varying paces, some experiencing boom periods, others bust periods, others more or less stagnating.

What happens, then, is that factors of production flow towards areas of greater productivity: that is where the jobs are, that is where capital receives a better return.

Borders and exchange rates

Within a political unit, these flows can occur unhindered. Between political units, they are obstructed by borders. These borders are the product of law. Laws set up obstructions to the crossing of boundaries. Furthermore, currencies, which are the product of law, form hidden barriers. Because they fluctuate, they make it more difficult to judge relative values, such as wages, keeping investors and workers from making the move, especially if the move looks to be from a more valuable to a less valuable currency. But beyond all of this, language and culture form boundaries, so that even in the absence of legal or monetary hindrances, people are hindered from moving because of the difficulty in adapting to foreign conditions.

So how do adjustments occur between economies separated by boundaries? Because trade and commerce of all sorts still takes place between them. The main mechanism for adjustment is currency exchange rates. When one country is outperforming another country economically, it will attract capital and investment. Additionally, it will export more than it imports, creating a current account surplus. These two are actually mirror images of each other: the capital account and the current account always balance to zero.

The result of this will be an appreciating currency.

In a perfect world, this mechanism would proceed unhindered, and the balance between nations would be maintained, with current account surpluses and deficits continually issuing forth in currency shifts that automatically lead to their reversals. Outperforming countries would have more money to buy foreign goods and services, and underperforming countries would have relatively cheaper goods and services to offer. This would result in a reversal of flows, with the more expensive countries importing more (and producing less) and the less expensive countries exporting more (and consuming less). Wages would increase in step with the currency, allowing them to import more. This is not a static condition. Currency exchange rates would continue to shift, balancing flows through the fluctuations and reversals of economic conditions over time.

Short-circuiting the feedback mechanism

But here is where problems arise. Particular interests are favored at any particular time, on both sides of the equation. On the side of the exporting country, there is the interest of the producers and exporters, while on the side of the importing country there is the interest of consumers. Or at least, consumers can be led to believe that it is in their interest to have cheap goods available, although there is a hidden cost to this that will be brought up shortly.

This is the situation in our current regime of globalism. Cheap-production countries are looking to lock themselves into exchange-rate and regulatory conditions favorable to their continued exports, even though such a regime is unfavorable to their own domestic economies. In those countries, domestic consumers face high prices on imports and a production geared to foreign markets; workers see their wages artificially suppressed, rather than automatically rising vis-à-vis foreign competitors, if currency exchange rates moved in step.

The gainers in such a situation are mainly multinational corporations which have relocated to low-wage countries and use their former home markets as dumping grounds for cheaper production. Other gainers are governments in the exporting countries, which book revenues from those corporations and their exports. Controlling elites on both sides of the equation benefit materially and in terms of power.

The result in the importing countries is cheaper imports, but likewise a drain of production capacity, leading to an economy heavily leaning towards services.

Is such an economy – one lacking in production capacity – sustainable? It would seem that, given the demands and requirements of modern welfare states and the generation of revenues they require, that such an economy is not sustainable – for ultimately it is production capacity that generates wealth, while services only redistribute pre-existing wealth. Not to mention the utterly redistributionist nature of entitlement and benefit payments, which generate no wealth whatsoever.

The stubborn expansion of imbalances

In the event, such a regime generates what have come to be known as “imbalances.” And a lot of effort is expended to counter those imbalances without resolving them. For to resolve them would lead to favored parties – e.g., multinational corporations, exporting countries – losing their lucrative advantages.

One of the important consequences is reflected in money and banking. The regime of fixed or pegged exchange rates is realized by keeping currency exchange from taking place. Normally, cross-border trade is paralleled by currency exchange, which leads to shifts in exchange rates. But to keep those exchange rates stable, currency exchange has to be headed off, as it were. This is accomplished through what is known as “sterilization.” Central banks act on the foreign exchanges to keep the foreign currency earnings from being exchanged into domestic currency. The domestic currency is thereby insulated from pressure to appreciate against the foreign currency. But this also leads to bloat in the currency of the importing country. Under our current regime, in which the US dollar serves as the reserve currency for international trade – and in which the US, not coincidentally, serves as the “consumer of last resort”—this has led to the buildup of massive amounts of liquidity without any outlet besides the “usual suspects” – i.e., markets that traditionally serve as havens for excess liquidity, such as real estate markets and stock markets. The result is asset “bubbles” that, when they burst, lead to massive failures in the banking system.

Migration as rectification of imbalance

This is one way in which imbalances are generated, and how they, by hook or by crook, get resolved. But capital flows comprise only one of the factors that resolve cross-border imbalances. The other mobile factor of production – labor – will likewise be drawn by the magnetic effect of richer countries, especially where 1) those economies are lopsided toward service jobs, which cannot be exported and therefore draw low-wage labor to them rather than going to where low-wage labor is, like manufacturing capacity can; and 2) those economies maintain more or less lavish welfare and benefit regimes which ipso facto exert an attraction to citizens of less prosperous countries.

Therefore, in a world of fixed or pegged exchange rates – or especially, in the case of the European Union, a single currency – imbalances are rectified globally in the same way they are internally within a domestic economy. For the effect of the current globalist regime is to turn the entire world economy into a single domestic economy.

It would seem that this is a driving force behind current policy decisions being taken by Western nations, both in North America and in Europe. In the United States, border control has lapsed and the government has introduced a range of measures to accommodate inward migration, rather than making an attempt to stifle it. It is a tacit acknowledgement that a regime of floating exchange rates, the counterpart of nations able exert to effective sovereignty, has become persona non grata, and that the great dream of cosmopolitan liberals everywhere is at hand: a global regime of universal jurisdiction, of police rather than military force, of a global welfare state in which ostensibly universal human rights move from the category of “ostensible” to “actual,” and the entire globe is harnessed into a redistributionist regime in which equal rights for all becomes a reality, regardless of cost.

In the meantime, what this regime of fixed exchange rates and open borders spells is mass migration. For able-bodied labor will move if it can move, and given the technical transportational possibilities that increasingly have become available to low-wage populations everywhere, this movement will only accelerate. This is even more the case where populations are stuck not only in low-wage situations but in crime-ridden or even war-ridden, dysfunctional countries. Muslim populations in particular seem to be caught inordinately in such situations. Not surprisingly, Muslim populations are on the move.

The problem with this solution

But this points up the profound danger involved in these movements, and the misgivings they give rise to among “receiving” populations. For we are not dealing here with interchangeable parts; we are dealing with human beings, with cultures, mores, religions, in addition to whatever wealth or lack of it, health or lack of it, they may already have. In true conditions of immigration, rather than migration, immigrants have gone to the country of destination with the mindset of assimilating into that country. When immigrants moved to the United States, for instance, they moved with the intention of becoming Americans, of leaving their home countries behind and entering into the social compact that has defined the United States from its inception. But with modern migration, it is not assimilation that the migrant is after, but rather the maintenance of his or her own culture and religion in the midst of the new environment – the establishment of enclaves within a foreign culture that is engaged but not entirely received. Nationhood becomes problematic; and instead of these groups being encouraged to assimilate, they become treated as victims of nationalistic jingoism. Patriotism really does come to be seen as the last refuge of the scoundrel, at least for the idealist. Cosmopolitanism becomes de rigueur.

But that cosmopolitanism is only a façade covering over deep divisions. For example, to what degree is Islam compatible with liberal democracy? If Muslims ever were to become a majority, would they maintain Western liberal institutions, or would they impose the institutions peculiar to Islamic countries, such as Sharia law? These are questions that not only are interesting academic exercises, but which practice will answer unequivocally, sooner or later, and which real people will feel the effects of.

Another such question: to what degree can countries like the United States sustain influxes of low-wage labor for service jobs that already are under pressure from unemployed or underemployed citizens? How can revenues be generated to counter the massive amount of pressure being put on the health, education, and welfare systems these countries have built up over the years, especially given their aging populations? Is it not a form of collective suicide to allow these migrations to take place in the hope that the gravy train will continue to flow? For looked at purely in terms of economics, these flows look to be unsustainable.

The end game?

Perhaps that is what our contemporary global elites are after. The very destabilization of nations, the undermining of national sovereignty, only plays into the hands of those desiring to establish a global regime to replace, or at least gain dominance over, sovereign nations. Nationhood itself is at stake. Politicians seem to have placed the dream of universal jurisdiction and the realization of every human being’s inalienable rights to food, accommodation, livelihood, education, health care, and the rest of it, above the exigencies of national survival. Apparently, they will pick up the pieces left in the aftermath of conclusive national failure.

Indeed, this would seem to be end game of national leaders favoring and preferring foreign interests to those of their own nations (Barack Obama, Angela Merkel). They seem to be auditioning for leadership in the regime which is yet to come, a regime to supplement or even replace our current internationalist institutions such as the United Nations. Will it ever come to that? Yet another of those questions that practice will answer. But it is looking increasingly likely.

But there is an alternative. The venerable tradition of national sovereignty, of laws and currencies which are the expression of that sovereignty, of national populations that determine their own destinies rather than having them determined by unaccountable elites at transnational levels – the infrastructure for this is still there. And the top priority to this end, quite simply, is floating exchange rates and maintenance of the institutions protective of national sovereignty. This is not rocket science. It is a simple choice. Nationhood, or globalism?

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Mr. Ruben Alvarado is an independent scholar, publisher, and translator living to the east of Arnhem in the Netherlands. His writings, which span a wide variety of issues, can be found at WordBridge Publishing (http://wordbridge.net), Common Law Review (http://commonlawreview.com), and Common Law Economics (http://commonlaweconomics.com).